According to Dr. Ngan, if Southern Bank and Sacombank successfully merge, the country will still have a total number of 62 banks.

“It is difficult to say how many banks are enough to supply enough capital for the national economy because this depends on size of each bank and the banking system,” Ngan said.

If the merger plans continue, the country will likely end up with around 30-40 banks. If these banks are large enough, they will be able to meet the demand for capital for an economy with a GDP from 2-3 times higher than it is now.

He added that, “If we have hundreds of smaller banks, they would fail to meet the capital demand for the economy.”

In 2010 Vietnam’s GDP surpassed USD100 billion for the first time. At that time, Vietnam had nearly 100 banks of different kinds.

Due to the large number of banks compared to real demand, many banks suffered from bad bussiness, forcing the government to carry out a restructuring plan to remove weak banks through means such as mergers and acquisitions.

Besides the mergers and acquisitions, the government can use state-owned commercial joint stock banks such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) to buy stakes in poorly-performing banks to help restructuring.

After mergers, banks will be stronger in terms of both capital and network expansion, the two most important factors in banking operations.The mergers will also help to simplify operations and costs, raising the overall efficiency of banks, according to Dr. Ngan.